In the hunt for greater yields, diversification and returns, traditional asset managers are increasingly setting their sights on private market assets. Based on recent news, the UK’s Chancellor of the Exchequer, Rachel Reeves, is hoping to do the same with the country’s pension funds, by forcing these funds to invest a minimum of 10% into UK private market assets. How feasible, let alone attractive, this vision is up for debate.
Of course, no one is suggesting that this foray into private markets is without risk. There have been countless analyses on the dangers presented by longer lock-up periods, for example. However, there has been far too little attention paid by market participants to the various operational complexities sure to emerge as the workflows surrounding public and private investing converge.
In the increasingly data-dependent landscape of investment management, any government seeking to mandate private market investment thresholds must heed caution, and ensure their nation’s pension funds can handle the operational requirements of this top-down approach to private market asset allocation. This is as true for the UK as any other market. It is paramount the process for private markets investment — namely due diligence, investment, and valuation — is done through a data lens to avoid unfavourable outcomes, and that the operating model can accommodate the different requirements of public and private markets. This requires pension funds having the right systems to make this a reality.
Performing due diligence on prospective investments — be it a business or infrastructure project — is one of the most data-intensive processes for investors, particularly those operating in private markets. Due to the nature of private markets, which as the name suggests are private, much of the key information required to build a good understanding of a prospect is not easily available in the public domain. Investment managers must request and organize the data themselves, much of which arrives in unstandardized formats.
The sheer volume and variety of data required to complete effective due diligence exacerbates the challenge from a resource-allocation perspective. While market data providers have created specific due-diligence offerings to combat this — some of which specialize in private markets — firms must carefully consider how these may interact with their existing data operating models, especially if they are mainly geared towards public investments. A 10% minimum investment into private markets may seem small, but if that is an increase from 2-3%, the impact on the fund’s operations will be significant.
Once due diligence is complete and a term sheet is signed, firms then face the challenge of keeping track of the capital committed, along with the capital drawn against that investment. Most of the time, private market capital calls arrive via emailed PDF attachments, or even via fax, though hard to believe in 2025. For firms trying to track both public and private capital calls, sifting through and unifying this data will require significant legwork.
The task of accurately valuing assets presents another data dilemma, for several key reasons. Private assets are not marked-to-market as often as public investments, so they can be subjective and difficult to determine. Consider, for instance, the complexity of valuing a major infrastructure project such as the development of a new airport. Such projects typically possess long lifespans with highly diverse and convoluted cash flow patterns. Accurately forecasting future cash flows — which is fundamental to asset valuation — over such extended periods is no mean feat. It requires careful analysis of factors like economic trends, regulation, maintenance costs and potential risks. Of course, all these factors rely on effectively analysing and managing a vast variety of data. For most UK pension funds, the types of data they may have to scrutinize will be entirely new, subsequently presenting a fresh set of challenges.
These examples serve as a reminder to go into private markets with eyes wide open. While the opportunity posed by alternative assets is compelling, the UK government should ensure their national pension funds, a backbone of the economy, possess the necessary data infrastructure to accommodate assets that behave very differently from the likes of publicly traded stocks and bonds. Not only that, but they also need to ensure the funds can bring public and private portfolios together through a whole of fund view.
In those countries that have done this successfully, such as Australia, Canada, the U.S., The Netherlands and Denmark, a huge amount of investment has gone into new operating models with aligned data management capabilities. If the UK government is to successfully capitalize on the opportunities on offer in the private markets arena, supporting their funds to establish a strong private/public market operating and data model must be at the heart of the strategy — not a mere afterthought.
GoldenSource is a New York-headquartered enterprise data management firm, working with asset managers, institutional investors and banks.
